SEC arbitration

Pump and Dump Scheme Busted

The SEC made the announcement in a press release.

“The Securities and Exchange Commission today charged six individuals and their companies with participating in schemes that allegedly generated more than $35 million of illegal sales of stock in at least 45 microcap companies. The charges contained in two complaints reflect investigations by staff in the SEC’s New York and Boston offices, and assistance from multiple regulators outside the U.S.

“According to one SEC complaint, Steve M. Bajic, a citizen of Canada and Croatia, and Rajesh Taneja, a Canadian citizen, helped shareholders secretly dump large quantities of microcap stock, coordinating the illegal stock sales with Kenneth Ciapala, a citizen of the U.K. and Switzerland, and Anthony Killarney, a U.K. citizen, and Swiss-based company Blacklight SA. The SEC’s complaint also alleges that Christopher McKnight, a Canadian citizen, and Aaron Wise, a U.S. citizen, fraudulently transferred, and hid the sources of, funds used to promote several of the microcap stocks.”

The complaint described the scheme further.

“Since July 2015, the Platform Defendants have illegally assisted numerous companies’ control persons by orchestrating the coordinated dumping of shares to unsuspecting investors in the public markets. the securities of at least 45 public companies, for net trading proceeds of about $35 million. In addition, without coordinating with Bajic, Taneja and the entities they control, Blacklight SA has engaged in the same type of illegal dumping of the shares of dozens of other companies, for net trading proceeds of at least another $25 million. Without coordinating with Blacklight SA, Bajic and Taneja and the entities they control have also engaged in the same type of illegal dumping of the stock of dozens of other companies, for net trading proceeds of at least $7.7 million. The Platform Defendants, together and separately, were paid a percentage of the net trading proceeds as compensation for arranging these illegal stock dumps.”

Micro-cap stocks are those with market capitalization of somewhere between $50-300 million, according to Motley Fool.

A pump and dump scheme, like the one described in the complaint, is quite popular among securities fraudsters for micro-cap stocks in part because shares in those stocks are relatively illiquid and as such, easier to manipulate.

A similar scheme was at the heart of the movie Boiler Room.

Organized crime has also previously participated in pump and dump schemes.

Corrupt brokers affiliated with the Bonnano and Genovese crime families were busted twenty years ago in a similar pump and dump scheme.

The LA Times described the scheme.

“In a case that shows how the mob is trying to muscle in on Wall Street, a federal grand jury here indicted 19 men, including two reputed Mafia chieftains and several stockbrokers, in an alleged plot to manipulate the stock of an obscure Arizona company, prosecutors said Tuesday.

“Two of the company’s top executives are also among those accused in what the FBI called a ‘classic pump-and-dump operation’ in which mob-connected brokers allegedly drove up the price of the stock so they and their accomplices could unload it at a profit to members of the public.

“The mobsters allegedly used strong-arm tactics, including a threat to ‘knife’ family members of the company’s chairman if he stopped cooperating in the scam, authorities said.

According to the story, a company, Mesa, Ariz.-based HealthTech International zoomed from a low of 63 cents to a peak of $3.06, as part of that scheme.

Regarding this particular scheme, Marc P. Berger, Director of the SEC’s New York Regional Office, stated, “As we allege in the complaints, the defendants evaded the securities registration requirements and engaged in other manipulative conduct, including by disguising the true sellers of securities, to defraud investors and generate illicit profits for themselves.”

Simultaneously, the US Department of Justice brought criminal charges for the same scheme.

Here is part of their press release.

“BLACKLIGHT, S.A. (‘BLACKLIGHT’), a Swiss entity based in Geneva, Switzerland, that purported to offer asset management and trustee services to its clients, and a founder and co-principal of BLACKLIGHT, KENNETH CIAPALA, executed a wide-ranging stock manipulation scheme that spanned from in or about 2013 through December 2019 in which they manipulated the share price and trading volume of the publicly traded shares of multiple companies, and laundered the proceeds generated by the scheme.  CIAPALA, utilizing BLACKLIGHT, set up various nominee entities to help scheme participants conceal their ownership of public company shares and evade SEC reporting requirements.  BLACKLIGHT opened bank accounts and brokerage accounts on behalf of these nominee entities and executed trades in accounts held by these nominee entities in furtherance of the stock manipulation scheme.

“ULRIK DEBO, a Danish citizen who resided in Europe, furthered the stock manipulation scheme by, among other things, identifying suitable publicly traded shell companies that could be used in the scheme; identifying, in certain instances, suitable privately held companies to engage in ‘reverse merger’ transactions with the shell companies; obtaining financing to purchase all or substantially all of the outstanding shares of the issuers; causing various nominee entities to obtain ownership of the issuer’s shares; identifying and paying “promoters” that issued exaggerated and, at times, false press releases about the issuers in order to raise the trading price and volume of the issuer’s shares; and identifying and paying various ‘trading specialists’ who assisted in artificially manipulating the trading volume and price of the issuer’s shares.”

FBI Assistant Director William F. Sweeney Jr. said:  “As a major facilitator of market manipulation schemes, Blacklight, S.A, allegedly enabled numerous ‘pump and dumps’ over the course of six years.  Disrupting the orchestrators of illegal financial activity is a top priority for the FBI’s securities fraud team, and we consider today’s indictment of Blacklight, its founder and principal owner Kenneth Ciapala, and co-conspirator Ulrik Debo an important step in that mission.”